Seaport Global Upgrades Canopy Growth, Likes Growth Opportunity

Cannabis stocks are grouped within the "risk-off" category, but after falling around 10% since the start of 2019, Canopy Growth Corp CGC can now be seen as a safety play, according to one analyst.

The Analyst

Seaport Global's Brett Hundley upgraded Canopy Growth from Neutral to Buy and announced a new $31 price target.

The Thesis

The cannabis sector deserves a spot in the "risk-off" category due to sustained bureaucracy, lack of regulatory clarity, compliance issues and notable executive departures, Hundley wrote in the note. At the same time, there's "no question" cannabis stocks offer not only some safety for investors but an "attractive" growth opportunity.

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Hundley said Canopy stands out in the cannabis crowd as it can leverage its R&D, IP and partnerships to give consumers compelling value-added products. The company also has an attractive balance sheet that stands at $4.5 billion when including net benefits from warrants from Constellation and subtracting future cash burn, the Acreage ACRGF option premium payment.

Canopy should be able to take advantage of its cash to seek out investments that create a value multiplier of six times or more, according to the analyst. Even if one were to assume a multiplier of two times on cash, the research firm's financial model generates an "appropriately conservative" price target of $31 per share.

Price Action

Shares of Canopy Growth traded around $24.95 at time of publication.

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